HSA growth may hit some hurdles

A quick scan of recent press releases from health savings account custodians indicates that HSAs are continuing to grow at a vigorous rate.

For example, in March, Kansas City-based UMB Healthcare Services, a division of UMB Financial Corporation, announced that account balances for its HSAs grew 36.1 percent surpassing $400 million dollars following 2011 open enrollment. UMB said that the number of HSAs in their care stood at nearly 220,000 at year-end.

[See also: 2012 HSA and FSA cheat sheet]

Dennis Triplett, CEO of UMB Healthcare Services said, "We are excited to see the continued adoption and acceptance of consumer-directed health care plans by individuals looking to better manage current health care costs while saving for the future.” 

Likewise, in February, Bank of America announced a record 34 percent growth in HSAs in 2011, saying that they had added more than 50,000 accounts last year. The growth was attributed to increases in account use among employees of existing corporate clients, and new relationships with individuals and employers.

[See also: Five reasons to enroll in an HSA]

HSA Bank, a division of Webster Bank, opened the year with an announcement that it had surpassed $1 billion in HSA deposits, noting that reaching this milestone further supported the findings of HSA Bank’s June 2010 Consumer Benchmark Survey that HSAs are a mainstream health care option. 

The first quarter of 2012 also produced good news for HSAs for their ability to save money without compromising care. The Sixth Annual Cigna Choice Fund Experience Study, found that workers who engage in health-smart habits offered in HSA plans reduced their health risks and lowered their total medical costs an average of $9,700 per employee over a five-year period.

All of this positive news about HSA growth might lead one to draw the conclusion that HSAs and the underlying high-deductible health plans, or CDH plans, are assured a rosy future as they continue to build more and more market share. However, there may be storm clouds gathering on the horizon.

Roy Ramthun, who led the U.S. Treasury Department’s implementation of the HSA program, says that there are a couple of provisions in The Patient Protection and Affordable Care Act (PPACA) that could derail the growth of CDH going forward.

Ramthun said that he expects to see continued strong growth of CDH in the large-employer, self-funded market. While self-funded employer plans are not subject to all of the PPACA requirements that apply to fully insured health plans, they will still be affected by the so-called “Cadillac Tax.” This is the excise tax of 40 percent on insurers of employer-sponsored health plans with an aggregate value of more than $10,200 for individual coverage and $27,500 for family coverage.

The Cadillac Tax is still a few years away. It does not kick in until 2018, so in the meantime, Ramthun said he expects that self-funded employers will continue to shift their employees to lower-cost CDH plans as a strategy to avoid the tax, among other reasons.

However, said Ramthun, CDH options soon may not continue to be available to smaller employer insured groups and individuals – which could end up being the majority of the health insurance market, depending on how the state insurance exchanges develop. The problem is with two provisions of PPACA intended to provide new “consumer protections” for health insurance.

One is a measurement of actuarial value (AV), which can be defined as “the average share of medical spending paid by the plan for a defined set of covered services across a standard population of both healthy and sick consumers” and takes into account both the range of medical services and cost-sharing requirements.[1]

Ramthun notes that each of the four health plans to be offered in exchanges under PPACA (Bronze –Platinum), have been assigned a target actuarial value from 60 percent (Bronze) to 90 percent (Platinum) which represents the average health plan coverage the plan member might expect to receive for a defined set of covered services.

Ramthun points out that there is a danger that some CDH plans, by the nature of their higher deductibles, could fail to meet the 60 percent minimum to qualify as a Bronze plan. “While current regulations do allow employer contributions to HSAs and HRAs to count towards the actuarial value of the plan,” said Ramthun, “the value of the contributions will be adjusted (i.e., reduced), meaning that some plans could still fail to qualify. For individually-purchased HSA plans, HSA contributions will not be counted at all, so these plans are at even greater risk of not qualifying.”

Mac McCarthy of McCarthy Actuarial Consulting said that calculations done by his firm show that a $1,000 employer contribution to an HSA or HRA would have the effect of adding only $450 to the actuarial value of the health plan.

A second hurdle for continued small group and individual CDH adoption according to Ramthun is the medical loss ratio (MLR) provision of PPACA. “While the AV prospectively measures the ratio of claims paid to total charges,” Ramthun said, “the MLR measures the ratio of claims paid to premiums after the fact.”

Individual and small group plans that pay out less than 80 percent of the premium dollars they collect in claims and quality improvements (85 percent for large groups) must rebate premium dollars.

Ramthun said that CDH plans face three challenges in their ability to meet the MLR requirements:

  1. CDHPs naturally pay fewer claims because of deductibles
  2. CDHPs still incur expenses for claims processing
  3. Fixed costs represent a higher share of expenses for low premium plans

Ramthun said that these two provisions of PPACA — AV and MLR — intended to provide additional value to the consumer, could have the unintended consequence of hurting the consumer by limiting their choices of health plans and decreasing the affordability of available plans. Ramthun encourages brokers to take a role in educating colleagues, clients, and customers about these threats to consumer-driven health plans and contact their elected representatives about these concerns. Ramthun has also started a new coalition to give a voice to those concerned about keeping these options available. For more information go to: http://www.healthcarechoicecoalition.org/

[1] Source: http://healthreform.kff.org

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